US Fed chief Bernanke sees prolonged home construction depression

10 February 2012 19:28[Source: ICIS news]

WASHINGTON (ICIS)--The long-troubled US home building industry may remain depressed for several years, US Federal Reserve Board chairman Ben Bernanke said on Friday, warning that 1m foreclosed properties will likely be dumped on the housing market in each of the next few years.

Speaking at a meeting of the National Association of Home Builders (NAHB), Bernanke said that “a very large number of additional [foreclosed] homes are poised to come on the owner-occupied market”.

In his remarks, he noted that in each of the last few years, as many as 2m foreclosed homes have flooded the nation’s housing market, “crowding out much of the need for new building”.

“Looking ahead, the relatively high rate of foreclosures is likely to continue for a while,” he said.

“We estimate that an additional 1m foreclosed properties could be added... in each of the next few years,” he added.

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Bernanke said that even as the prolonged housing crisis is aggravated by the expected ongoing flood of foreclosed properties, a number of factors are reducing home-buying demand.

“Household formation has been down, particularly among young adults,” he said, referring to what usually would be creation of new families and related housing demand as young people leave their parents’ homes and go out on their own.

“High unemployment and uncertain job prospects may have reduced the willingness of some households to commit to home ownership,” he said, noting too that even young couples seeking a home to purchase may be thwarted by continuing tight credit criteria.

“Additionally, housing may no longer be viewed as the secure investment it once was thought to be, given uncertainty about future home prices and the economy more generally,” he said.

As a measure of the decline in new home construction, Bernanke noted that during the 15 years preceding the housing bubble collapse in 2008, the pace of single-family housing starts had never fallen below 1m units annually.

“Since 2009, the pace of single-family housing starts has averaged less than 500,000 units per year,” he said.

Bernanke indicated that the situation for new home construction is not likely to improve any time soon.

For one thing, he said, “the problem of tight mortgage credit will not be solved easily or quickly”.